What Drives Pumped Storage Development in Europe and the USA?

Pumped-storage development in Europe has been taking off as power producers seek to complement wind and solar energy sources. By contrast, the abundance of natural gas and differences in politics and infrastructure have slowed similar development in the USA.

Twenty-two pumped-storage units with more than 2,400 MW of capacity were installed in Europe from 2000 to 2010 to help the transmission grid deal with the variability associated with wind and solar generation. In the second decade of this century, the rate of pumped storage construction is accelerating, with projections that 76 units with 11,562 MW of capacity will be added.1

By contrast, in the USA, no new significant pumped-storage plants were commissioned between 2000 and 2010. Two units with a total capacity of 40 MW were commissioned in 2011, and none are in the detailed project planning or construction phase. Projections for additions of pumped-storage units from 2012 to 2020 are few.1

This article identifies the drivers leading to the significant growth of pumped storage in Europe and compares and contrasts them to the USA. The analysis looks at the energy supply, characteristics of the variability of the renewable resources, economic and governmental factors influencing the building of pumped-storage plants, and resulting characteristics of the pumped-storage solutions.

Background

The units that were or are anticipated to be commissioned in Europe from 2000 to 2020 are conventional reversible synchronous speed (60%), variable speed reversible (29%), and ternary (11%) units (those with separate pump, turbine and motor-generator, as well as a torque converter).1 For nations in the Organisation for Economic Co-operation and Development, 96% of the commissioned megawatts occur in two regions: Austria/Germany/Switzerland and Portugal/Spain.2

In the USA, the two units commissioned were the conventional reversible type. Besides these units, from 2000 to 2020 there have been or will be 980 MW of capacity added through modernization and upgrade of existing pumped-storage facilities.

Figure 1 shows the striking difference between OECD Europe and the USA with regard to installation of pumped storage units. In both areas, electricity generation has grown in response to demand and there are similar electrical generation capabilities in the period studied (Figure 2 ).3

Renewable electricity generation

To manage carbon emissions and mitigate their effect on global warming, governments are providing incentives for installation of renewable electric generation, with European countries starting earlier than the USA.

In OECD Europe, social preferences and policies of the EU and individual countries have been decisive in influencing the electrical energy generation evolution. The European Commission's 2011 goals are to reduce carbon emissions to 80% to 95% below their 1990 levels, and its SET-Plan envisions complete decarbonization of electrical generation by 2050. Incentives, including feed-in tariffs, have been well-used. In the USA, state policies play a significant role, but the incentives of the federal government have also had a strong influence. Tax incentives and feed-in tariffs in the USA have been transient at best, with unknown periods of validity and expiration.

Thus, European electricity generation from wind, solar and biomass started growing earlier; today is ahead of similar efforts in the USA; and is forecast to increase more in the future in Europe compared with the USA (Figure 3).

Renewable energy is OECD Europe's fastest-growing source of electricity in the IEO2011 reference case, increasing by 2.5% yearly through 2035.2 IEO stands for International Energy Outlook, which is developed by the U.S. Energy Information Administration. In this outlook, OECD Europe's leading position in wind capacity is maintained through 2035, with growth averaging 6.4% per year, even though the reference case assumes no additional legislation to limit greenhouse gas (GHG) emissions. Strong growth in offshore wind is under way, with more than 800 MW added to the grid in 2010, representing a 51% increase over the amount added in 2009.

The growth of non-hydro renewable energy sources in OECD Europe is encouraged by some of the world's most favorable policies. The EU passed a "climate and energy policy" in 2008 that mandates 20% of energy production must come from renewables by 2020. Some individual countries have set even more aggressive goals through their National Renewable Energy Action Plans.

Some countries provide economic incentives to promote the expansion of renewable electricity. For example, Germany, Spain, and Denmark have enacted feed-in tariffs that guarantee above-market rates for electricity generated from renewable sources and, typically, last for 20 years after project commissioning. As long as European governments support such price premiums for renewable electricity, robust growth is likely to continue. In fact, projections of wind and solar energy in Europe show significant growth in the EU27 (the 27 member states of the EU).

In the USA, stimulation of renewables continues through state Renewable Portfolio Standards that require a certain percentage of electricity generated come from renewable sources. As of July 2012, RPSs had been passed in 29 states and the District of Columbia, with eight other states approving conditional or non-mandatory goals. In the IEO2011 reference case, generation from renewable sources increases in response to requirements for minimum renewable shares of electricity generation or capacity.

USA federal subsidies for renewable generation are assumed to expire as specified in the Energy Policy Act. If those subsidies were extended, a larger increase in renewable generation would be expected. Projected increased generation from renewables, excluding hydro, accounts for 33% of the overall growth in generation from 2010 to 2035. Generation from renewables grows in response to federal tax credits, state policies and federal requirements to use more biomass-based transportation fuels, some of which can produce electricity as a byproduct. The share of electricity generation from renewable fuels (including conventional hydro) is projected to grow from 10% in 2010 to 16% in 2035.

Electricity from coal

Coal accounted for 25% of OECD Europe's net electricity generation in 2008, but concerns about CO2 emissions and climate change could reduce that share. In the IEO2011 reference case, electricity from coal declines by 0.5% per year from 2008 to 2035 and ultimately falls behind renewables, natural gas and nuclear. Coal consumption in the electric power sector is not decreasing uniformly in all OECD Europe countries, however. Spain's Coal Decree subsidizes the use of domestic coal in Spanish plants and is expected to result in more electricity from coal-fired plants at least through the 2014 expiration date.

In the USA, the Cross-State Air Pollution Rule requires reductions in SO2 and NOx emissions in roughly half of the states, with an initial target in 2012 and further reductions in 2014. Coal remains the dominant source for electricity generation, but its share will probably decline from 45% in 2010 to 39% in 2035.

Electricity from natural gas

Despite recent restrictions on the availability of Russian gas, IEO2011 sees natural gas as the second fastest-growing source of power generation for OECD Europe, increasing by an average of 1.8% per year from 2008 to 2035. Prospects for the development of unconventional sources of natural gas in the USA and other parts of the world will help keep markets well-supplied and global prices low. In Europe, natural gas prices are indexed to substitute energy prices and move in proportion with other fuels, especially oil-based products and coal. And there are a limited number of suppliers and many buyers, and few players control storage and transport, so costs are higher than those in the USA.

Natural gas prices in the USA have declined significantly due to advances in gas extraction from shale, which have made the country the world's largest natural gas supplier. This inexpensive supply has led to significant growth in the use of gas turbines for electrical energy generation, particularly peaking power. "Gas-on-gas" markets, with volatile prices generally not in sync with other energy sources, keep prices low. And there are many suppliers and buyers, along with ample storage and transport systems.

Electricity from nuclear

Some countries have reversed their nuclear policies after the Fukishima Daiichi reactor incident. Germany announced plans to close all its nuclear reactors by 2022; the Swiss Cabinet has decided to phase out nuclear power by 2034; and Italian voters have rejected plans to build nuclear plants.

Nuclear capacity in the USA is growing. Electricity generation from nuclear plants grows by 11% in the IEO2012 reference case, accounting for about 18% of total generation in 2035.

Transmission grid issues

The transmission grid must be robust to get renewable generation to consumers and to provide a wider generation area to help mitigate the variability of wind and solar. Grids are managed by transmission system operators, which are main participants in markets for energy, ancillary services and capacity resources to ensure grid stability and reliability.

In Europe, from July 2009, the European Network of Transmission System Operators for Electricity has taken over all operational tasks from six TSOs. The strong growth of renewable electricity sources, especially wind and solar, has challenged the system in many countries. More often, wind turbines in some regions have been curtailed during periods with high winds, because of electricity oversupply.

Maintaining security of supply is of utmost importance. For a future grid, this can be ensured by increasing transfer capacity and introducing storage and demand-side management schemes, which also facilitate the use of renewable energy sources. The main cause of non-security is unpredictability of renewable in-feed and consequent bottlenecks in the electricity grid due to oversupply and undersupply in specific regions.

Renewable electricity surpluses cannot always be transferred to a region with net demand (i.e., transmission corridors require significant strengthening). Locally good transmission regions on the Iberian Peninsula support intermittent renewables with significant help from pumped-storage plants, which have been developed because of need and the favorable terrain. Also, good transmission in the Denmark/German/Austrian/Swiss region combined with favorable terrain in the Alps have supported investments in pumped storage to integrate the increase in wind and solar generation. In some countries, transmission fees are being imposed on pumped-storage operators while pumping, even though the plants provide a stabilizing service for the grid.

In Europe, ENTSO-E uses primary, secondary and tertiary control schemes to operate the generators and commit reserves to maintain grid frequency reliability. These schemes require certain reserves exist as a percentage of system loads and require reserve commitments in appropriate time frames to maintain reliability. Primary reserve commitments must be provided in seconds to minutes. Some utilities use thermal plants for primary and pumped-storage plants for secondary control. This works as long as there is enough installed power from thermal plants. When these are decommissioned while wind power is increased, the need for other sources of primary control energy will emerge.

In the USA, the transmission system is more regionally focused. Independent system operators (ISO) and regional transmission organizations (RTO) manage grid operations within their territories and also operate markets through which generation resources are procured. ISOs and RTOs must implement North American Energy Reliability Corporation reliability standards. NERC has a number of regional entities and balancing area authorities within the USA and Canada. Transmission systems are marginal in many regions, interconnections between regions are not very robust, and, as renewable resources grow in response to incentives of the states' RPS standards, regional bottlenecks have increased.

NERC reliability standards are developed and promulgated with input from regional organizations and approved by the Federal Energy Regulatory Commission in the USA and the provinces in Canada. NERC's performance standards ensure that balancing areas:

— Are able to use contingency reserves to balance production and demand and return interconnection frequency within defined limits after a disturbance;

— Provide a minimum contribution to maintaining overall frequency of the interconnection; and

— Have sufficient regulating reserves to meet the performance requirement.

Drivers of electrical energy storage

Factors that drive interest in the use of electrical energy storage for grid voltage and frequency management include: the variability of consumption, intermittent nature of wind and solar generation, emissions, wear and tear consequences of varying generation from conventional equipment, and concerns about grid stability and reliability.

At times of high wind and bright sun, this energy must be used when generated, stored for later use, or potentially curtailed. At times of low wind or cloud cover, other power is needed. Time frames from high to low production can be short (seconds to minutes). As the percentage of variable output electrical generation increases, the amount of variation of conventional electrical generation (reserves) needs to increase for grid balance.

Operators of nuclear and coal plants want to run them with modest output variations, and they are expensive to shut down and restart. Therefore, hydro typically has been used to provide variable generation. However, hydro flexibility is being reduced by environmental considerations. One example in the USA occurred in the Pacific Northwest where Bonneville Power Authority operates the grid. Significant oversupply of wind energy and a requirement to operate the hydro projects to minimize fish-injuring spill during high river flows are leading to wind curtailment or to BPA setting a zero price for hydro energy provided from federal generation.

In the USA, natural gas generators have been used to provide peaking power and balancing of intermittent renewables. With gas supply going up and prices going down, combined cycle gas and combustion plants have provided peaking reserves or electrical energy when wind and solar generation is low, and they can be shut down in times of high wind and solar generation. In Europe, natural gas is not yet plentiful, has had restricted and unreliable supplies, does not have a good distribution infrastructure, and has a price structure proportional to oil.

Gas turbines and other highly flexible assets are most wanted for their grid stability contribution but paid for electrical energy production. There is a need for "flexibility products" to make these generation assets economically attractive. Energy storage has also been looked at as a means to balance the variability of wind and solar.

Many storage solutions have been under development and evaluation. Pumped storage is a proven and mature technology with large storage capacity and good turnaround efficiency. The use of energy storage with these plants has increased rapidly in Europe. Based on the requests of plant owners, an advanced generation of equipment solutions has been developed to provide fast-acting units with varying degrees of flexible operation and improved turnaround efficiency. Advanced conventional single-speed reversible units; units with variable speed motor-generators that provide wider operational ranges in the turbine cycle and the capability for regulation in the pump cycle; and ternary units with a turbine, motor-generator, torque converter/coupling and multistage pump on a single shaft have been applied.

The economics associated with pumped-storage plants have been favorable in the Spain/Portugal and Austria/Germany/Switzerland regions. To reduce construction costs and time for approvals, existing reservoirs have been used. Plant owners have been electricity utility companies in Europe. Project economic justification has included revenue from energy arbitrage, ancillary service payments (principally regulation) and a portfolio effect where these plants optimize the operation of a conventional portfolio.

No plants have been built by independent power producers. A recent transmission fee charged to pumped storage plants in Germany and increasing competition from solar generation at mid-day will probably make it difficult to justify pumped-storage plants there. In the USA, many license applications have been filed by IPPs, but due to unclear economics and financing, no new plants are expected to be commissioned before 2020.

Summary

Some significant factors in developing pumped storage are:

— Europe has a stronger social preference than the USA for reducing greenhouse gas production;

— Europe has more variable generation from wind and solar than the USA;

— Use of natural gas in Europe is not as attractive as it is in the USA;

— Energy arbitrage opportunities due to price spreads for electricity are not as affected by gas generation in Europe as they are in the USA; and

— Storage in Europe is being installed to help firm intermittent generation.

This comparison represents a snapshot in time and the factors that influence costs and economic returns of pumped-storage equipment will change.

In the USA, many think gas is so inexpensive, there is not much discussion of pumped storage to support renewables. In Europe, many pumped-storage projects that were ready to build have been held because of politics and solar power taking over a good portion of peaking power at noon time. The latter reasons reduce generation revenues minus pumping costs, which is a financial basis of pumped-storage operation.

Richard Fisher is principal with HydroInsights, where he supports pumped-storage technologies. Jiri Koutnik, PhD, is manager of research and development for Voith Hydro in Germany and Lars Meier is manager of engineering for Voith Hydro in the USA. Verne Loose, PhD, is senior economist for Sandia National Laboratories, studying the potential for hydro projects in the western USA to balance variable renewable energy projects. Klaus Engels, PhD, is vice president of asset risk and governance-hydro with E.ON Generation Fleet. Thomas Beyer is head of the 1,060 MW Goldisthal Pumped Storage Plant owned by Vattenfall Hydro Power.